CEO expects more takeovers will be announced as we approach landmark October 17 date
As Canada approaches its October 17 recreational marijuana deadline, a leading ETF company CEO admitted nobody knows what’s around the corner.
Steve Hawkins, president of Horizons ETFs, the provider of the Marijuana Life Sciences Index ETF (HMMJ), said he is excited to pass the landmark date and see financial reporting from the industry’s leading companies, with headline-makers Canopy, Aurora and Tilray in his fund.
Hawkins dismissed the pessimists who claim these aren’t bricks and mortar firms, although he admitted there is a good argument that many of them are overpriced.
He said: “They ARE bricks and mortar companies, right? They’ve built production, they’ve built distribution and they are ready and waiting for October 17. [Many] already had their existing medical businesses and now they’re all gearing up from a both production and demand perspective for October 17.
“We’re excited by it – whether or not the market has already priced in what’s going to happen on October 17 from a retail and sale perspective, there’s a very, very good argument that it’s already priced in.
“Some of these companies are trading at huge multiples. They are also not taking into account that there is so much capital markets activity going on with these companies. Who knows who is going to be standing at the end of the rainbow in six months, a year from now?”
Hawkins expects more takeovers announced in the near to medium future and highlighted Canopy as the obvious ones to watch after their multi-billion dollar injection of capital from its deal with Constellation.
He said: “Canopy is sitting on $4 billion cash in their bank plus and the warrants haven’t been exercised so that’s another billion dollars.
“What are going to do with that money? Yes, they are going to be building production out of it. They are definitely not going to be offering dividends to their unit holders or shareholder base. They are going to be spending that money and that’s a pretty sizable war chest to be putting into action.”
Hawkins admits there is less pressure on Horizons as a passive manager and said he is comfortable working within the rules of the index despite its relative lack of flexibility.
He said: “There are two funds out there that are actively managed and they could have bought Tilray at the IPO and then sold it already and bought it and then sold it again. We didn’t have the opportunity to do that. So they have more flexibility in that way. But what if they didn’t buy Tilray? What if they didn’t own Aurora because they thought it was overvalued?
“There’s nobody out there who has experience of managing a new sector like this from a fundamental perspective, this is all capital markets and news driven and nobody know what’s around the corner unless they are trading on insider information which I highly doubt they are. That's not how this industry works.
“If you’re in with active management, you have the ability to generate alpha but you also have the significant opportunity to underperform a diversified index and we’re seeing both ways out there. We are happy to be comfortable with the rules of our index and meeting the mandate of our ETF.”
